236(E)(2) Use Agreement
Section 236 was created in 1968 to attract the private market to the development of affordable rental housing. Private lenders provided 40-year market loans, either insured by HUD or financed by a public housing finance agency. HUD made available to the owner an interest reduction payment (IRP) that subsidized the owner`s mortgage on an interest rate of 1%. The IORP was fully funded to be paid to the mortgage lender monthly for the entire 40-year term. Through a regulatory agreement or user agreement, the landlord has agreed to rent only to households whose income is less than or equal to 80% of the median income and to limit rents to rents authorized by HUD and based on costs. Finally, many properties have benefited from additional assistance in the form of a rent increase (Rent Supp), rental assistance payment (RAP) and/or Section 8 of Project-Based Rental Assistance Contracts (PBRA). Certain Section 236 loans may be paid in advance without HUD “as-of-right” authorization. These are generally referred to as § 219 instalments. Landlords must send a deposit to each tenant between 150 and 270 days before prepayment. Rents cannot be increased 60 days after the advance. Owners of Section 236 real estate, originally developed by non-profit organizations, as well as certain real estate with leases and mortgages under Section 221(d)(3) may not pay in advance without HUD permission. These are generally referred to as down payments under Section 250(a).
Owners must notify residents 150 days in advance. The guide describes an owner`s financing options, including refinancing to raise capital, prepayment of the initial section 236 loan, decoupling the balance of an IORP from the original mortgage, and applying the IRP grant stream to a new loan as part of a down payment and refinancing transaction, and the facilitation of balloon payments due for certain flexible grant loans. The guide also describes rental assistance options, including renewing expiring contracts in Section 8, with a potential increase in contract rents, making tenant protection vouchers available for residents, and converting real estate into PBRA vouchers or projects under Stream 2 of the Rental Assistance Event. . . .